House of the Day: 249 Carlton Avenue

Pierre's description is spot on. Saw it too in January with the idea of making a duplex with two floor through rentals above. The bones were pretty solid, with some old water damage that had been sloppily repaired but wasn't extensive or threatening. The basement would have to be reworked and fireproofed, as it wouldn't pass inspection, and the brick in the front of the basement was a little too damp for my liking. I agree that the way these places were chopped up is a shame. The parlor floor had a dropped ceiling in the transition between the living room and bedroom that housed no pipes and was probably there to coverup water damage from a bathroom above. There was little to no detail left in any of the units and they were all pretty dingy, although renting at well below market rent. The top floor was pretty amazing, in terms of ceiling height, and was probably my favorite unit. I don't think the owner needs to sell. He's owned it for a little while now, recently put some money into it (new meters, new roof, etc) and if he has the rents below market (I think they're renting for 1400 each) in the shitty condition they're in now, then it wouldn't take more than a little paint and some kitchen and bathroom work to get them up closer to $2000, which given each units size they could easily command (if not a good deal more). If I had more cash and wanted to do a big reno project at some point in my life I would buy this now, move into the ground floor unit, paint and redo kitchens and bathrooms upstairs to get better rent roll, and then save money for an eventual renovation, which would be considerable, cost-wise. Yes, you could certainly redo the facade and replace lintels, etc., but you don't _have_ to.

Posted by: brookjoo at February 26, 2009 11:12 AM

Pierre:

I think one's financial situation and how they want to use the place at the moment maybe matters more than how this is priced today against other places. If the seller was willing to take 1.35 then lets use that as a starting point, because obviously anything less only makes it a better deal. Considering the location, the high-ceilinged top floor, and nice backyard, I think this place has potential for a patient investor or occupying investor.

The best way this place functions is as it's currently chopped up, because that requires the least amount of renovation. Imagine, for a second you had 1.35 in cash sitting around (I've spent much of today imagining just that...sadly, not so much). If you purchased at 1.35 and spent some money really getting the units into good cosmetic condition (here I'm thinking new kitchens and bathrooms, some plaster work, and basic floor cleaning--the floors were actually in pretty good condition) then I think you could get $2000 per unit, averaged out (there's backyard for garden, and parlor has great ceilings, but 2nd and 3rd stories have office room off of the bedrooms). So if your yearly rent roll is $96,000 and taxes are $5792, I'm totally guessing that after water/sewage, etc come out you're left with around $80,000 a year. That represents a 5.9% return, which is better than anything going on in the market right now (I should add that I'm very conservative with investing, so Real Estate feels more solid to me now, no pun intended). That's also a sheltered return, so in actuality is a bit more than that. You also have to factor in that the building will appreciate in the long run, so to me, even at this price it could make sense.

Now as a duplex it's more complicated. For me, I'd want to get the facade back to where it should be, and then make a nice duplex with two smart rentals above. Pipes need to be reconfigured because of the way the bathrooms were fitted in, there's the work in the basement and definitely a lot of plaster work especially on the north wall of the stairway, which had significant peeling and cracking. You have to decided weather to live with a fire escape, or put sprinklers in, etc. What matter more here is what you want to do, not what I want to do. If you just as a blanket statement said, at some point I want to convert, than putting $650,000 into this place and bringing it up to a round 2 million would probably get you a great place; however, at that point you've lost half the rent roll, probably all of it for a while as you remodel the rentals too, and it's a BIG renovation. It's much less interesting as a renovation job for me than as a straight up investment. I think this would not be the way to go unless you envision living in one of the units as a 1BR for a while as you save, and try to do some of the work yourself if you're capable (plaster, painting, kitchen--nothing like the fireproofing or pipe relocation.)

Just my two cents.

Posted by: brookjoo at February 27, 2009 2:45 PM